Duff & Phelps Publishes Tenth Annual U.S. Goodwill Impairment Study

Duff & Phelps, the global advisor that protects, restores and maximizes value for clients, today released its 2018 U.S. Goodwill Impairment Study (“the Study”). This marks the 10th consecutive year that Duff & Phelps has prepared and issued a comprehensive Goodwill Impairment Study, which included general and industry goodwill impairment trends of more than 8,400 U.S. publicly-traded companies through December 2017.

Key general highlights from the 2018 Study include:

Total goodwill impairment recorded (“GWI”) by U.S. public companies climbed 23%, reaching $35.1 billion in 2017, while the average GWI per event rose by 21% to $120 million.

Nearly $319 billion of goodwill was added to U.S. companies' balance sheets during 2017, the highest level since 2008, reflecting a stellar year for M&A.

For 2018, aggregate GWI is on pace to bypass 2017, with current disclosures indicating that the top 3 GWI events this year alone will approach $30 billion.

Key industry highlights from the 2018 Study include:

Seven out of the ten industries analyzed saw their aggregate GWI amounts increase in 2017– with Energy and Information Technology serving as notable exceptions.

Consumer Discretionary was the hardest hit industry, as overall GWI increased by 71% in 2017 to $9.3 billion.

Energy, the worst-impacted industry for three consecutive years (2014-2016), saw the most noticeable improvement in 2017 as GWI dropped by 80%, reflecting a recovery in oil prices and an improved industry outlook.

“Despite strength in both the global economy and U.S. equity markets, U.S. companies experienced an increase in aggregate impairment amounts in 2017,” said Greg Franceschi, Managing Director and Global Leader of Duff & Phelps’ Financial Reporting Valuation Practice. “Goodwill may be exposed to future impairments particularly given the record $319B of goodwill added to corporate balance sheets during 2017 – a reflection of robust M&A activity fueled by the favorable economic and market conditions in 2017. In fact, this is the highest level of aggregate goodwill added since Duff & Phelps began compiling this data in 2008.”

The Study indicated that the Consumer Discretionary sector was the hardest-hit industry during 2017 and has represented an increasing share of overall GWI for three years in a row. Now that economists and market analysts are predicting a slowdown in economic growth, this may place further strain on the industry in the months ahead. In contrast, the energy sector saw the biggest improvement in goodwill impairments during 2017, signaling a resilient recovery in this vitally-important part of the U.S. economy. The improvement may be short-lived, however, as oil prices have retreated from their 2017 levels, with WTI crude oil dropping almost 13% on a year-to-date 2018 basis.

“Looking at 2018, the top three goodwill impairment events disclosed thus far have neared $30 billion, with several other material impairments already being reported. This trend points to yet another significant increase in the overall goodwill impairment amount,” added Franceschi.

In January 2017, the FASB issued ASU 2017-04, eliminating Step 2 of the goodwill impairment test. The effective date for U.S. publicly-traded companies with a calendar year-end is not until the beginning of 2020. However, ASU 2017-04 allows for early adoption and this year’s study revealed that, of the companies recording the top 10 largest goodwill impairment events in 2017, 80% have already adopted the new simplified test.

About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countries around the world. For more information, visit www.duffandphelps.com.

M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. M&A advisory and capital raising services in Germany are provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.